Screwed

A lawsuit against the city highlights an affordable-housing program's decades of mismanagement — and the middle-class homeowners who lost out as a result.

The buyout provision allowed condo owners to pay a one-time fee to permanently exit the program and gain the right to sell their homes at full market value, but for many, the fees — established on a sliding scale from $150,000 to $500,000, depending on the size and income designation of the unit — were prohibitively expensive. Lund, for instance, would have to pay $150,000 to exit the program. That's half the full market value of her studio.

If the Mayor's Office was willing to acknowledge that past mismanagement entitled pre-1992 condo owners to buy their way out of the program, the owners asked, why make it financially ruinous to do so?

For a time, the fate of this legislation was uncertain. Dozens of homeowners and their lawyers flooded into City Hall for supervisors' hearings on the program, complaining of misinformation they had been provided and an unwillingness among current city housing authorities to agree to a fair compromise.

A condominium building at Goldmine Hill, a residential complex in Diamond Heights where many homeowners are suing the Mayor’s Office of Housing.
Frank Gaglione
A condominium building at Goldmine Hill, a residential complex in Diamond Heights where many homeowners are suing the Mayor’s Office of Housing.

In the end, the Mayor's Office of Housing got its way. In a July 2008 committee hearing on the legislation, then-Board of Supervisors President Aaron Peskin said that while the upset homeowners had "remarkably compelling stories," the Mayor's Office deserved some credit for trying to fix the BMR condo morass rather than punting on it.

"It's kind of rare in government when somebody stands up and admits they've been doing something wrong for 20 years, and that's an interesting thing for us all to ponder," Peskin said. "As much as I'd like to accuse and blame somebody, this is no one Director of Housing or Mayor's Office of Housing person's fault. This is no one Board of Supervisors' fault. This is no one mayor's fault. This has gone on over numerous mayors, over numerous administrations, and finally somebody had the political fortitude to stand up and say, 'We have to fix it.'"

On Dec. 16, 2008, the ordinance passed the full board 9 to 2. (Sandoval and Chris Daly were the dissenting votes.) But the fix wasn't what all those folks with compelling stories had in mind. Five months later, the first wave of condo owners — soon to be joined by others — filed their lawsuit in federal court, asking that their units be released from the BMR condo program, and that the program as a whole be dismantled.


How sorry should we feel for these people? Even if their homes are worth a few hundred thousand dollars less than they would like, the condo owners now suing the city are hardly among San Francisco's most desperate residents. Like the beneficiaries of any other government program, some might be trying to game the system. And there's little doubt that those honestly confused about their ownership rights were ill-served, as Shoemaker suggests, by a lack of financial savvy.

Nevertheless, Cincotta, the former housing director on whose watch the program began, thinks something went wrong here. The initial premise of the BMR Condo Conversion Program, he said, had nothing to do with creating permanently affordable homes. While it was one of the first nationwide to resemble the now-common practice of inclusionary zoning — whereby developers agree to set aside a fraction of units in new residential projects as permanently below-market-rate housing — Cincotta recalls that the BMR condo program had more modest and immediate goals.

"I think that's one of the things that's been missed," he said. "The big crisis was gentrification. ... I think our focus at that time was the focus of minimizing displacement, for that particular time, for that particular person. We had less concern about keeping it affordable permanently."

Rather than setting up punitively high buyout fees, Cincotta said, a more enlightened approach to modernizing the program would have been to modify the terms of the agreement between owners and the city along a "shared equity" model. Such programs already exist in San Francisco: Owners and the city share proportionally in the increase or decrease in a home's market value, according to their original levels of investment or subsidy.

"If either city or home-owner puts $75,000 into a property, that amount should increase or decrease as the value of the property increases or decreases," Cincotta said. "To me, that system is more equitable. The way the city system is now, the lower-income household is taking all the risk, and I think that's the problem."

Sitting with Phyllis Lund on a recent afternoon in front of her Goldmine Hill condo's gas fireplace, it does seem odd that this small corner of the world she has made her own should rest, after nearly 20 years, in the control of bureaucrats. Lund said she knew that her studio was a below-market-rate unit when she bought it for $96,000 — "I thought it was just a break for first-time homebuyers," she said — but was never informed of future restrictions: "I've kept every single paper. Nowhere did I have anything."

Ironically, Lund said, back in 1992 she considered buying a market-rate studio in the same neighborhood that cost only about $8,000 more, a pittance when spread out over the lifetime of a mortgage. But she preferred the layout of her Goldmine Hill condo, and as a result now essentially has $100,000 less than she would have if she had bought the comparable studio up the street.

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